LNG is cheaper than VLSFO, Sea Intelligence says

Liquefied natural gas (LNG) has become cheaper maritime fuel than Very Low Sulphur Fuel Oil (VLSFO), according to the most recent analysis made by Danish consultancy Sea-Intelligence.

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To comply with the IMO2020 regulations aimed at cutting sulphur emissions, the shipowners were given a choice between VLSFO, LNG, or scrubbers.

“All were viable options, but it was entirely unclear, which was the “right” choice. As the market evolved, we first saw a spike in VLSFO prices, suggesting a good case for scrubbers. Then the premium dropped rapidly, and scrubbers seemed like less of a good idea. The premium then escalated once more, making the case for scrubbers,” Alan Murphy, CEO, Sea-Intelligence, said.

“With the Russian invasion of Ukraine, LNG prices spiked to extreme levels. Now, LNG prices are getting to a point, where it is cheaper than VLSFO. LNG should be compared to (VLSFO) prices, as LNG is a fuel which, like VLSFO, adheres to the IMO2020 low-sulphur regulation, without the vessel having to install a scrubber.”

In the absence of publicly available global LNG prices, the consultancy used Rotterdam prices as a proxy. The analysis compared IFO380 prices in Rotterdam to the global average for IFO380, and established a good match. Nevertheless, the fuel price at Rotterdam is typically lower than the global average. In the first half of July 2023, this price discount in Rotterdam was on average 34 USD/ton. 

Even with the -34 USD/ton discount taken into account, it is evident that we are now in a situation, where the usage of LNG is financially advantageous compared to VLSFO fuel, Murphy said.

In the quest for a greener and more sustainable maritime industry, LNG has emerged as a promising marine fuel but is ever more frequently seen as a bridging solution.

LNG produces significantly lower emissions of greenhouse gases, sulfur oxides, and particulate matter compared to conventional fuels, making it an attractive option for decarbonization efforts.

That being said, it also has some disadvantages on the pathway toward achieving net-zero emissions in the shipping industry.

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While LNG produces lower CO2 emissions compared to conventional fuels, it is still a fossil fuel and emits significant amounts of greenhouse gases when burned.

In addition, LNG is primarily composed of methane, a potent greenhouse gas that is significantly more potent than CO2 in terms of its short-term warming potential. During the production, transport, and handling of LNG, methane leakage can occur, offsetting the potential climate benefits of using LNG as a marine fuel.

While LNG bunkering infrastructure is expanding, it is still relatively limited compared to traditional fueling options. This limits the accessibility of LNG for ships, especially in remote or less developed regions, hampering the widespread adoption of the fuel.

With the increasing focus on achieving net-zero emissions in the shipping industry, there is growing uncertainty surrounding the long-term viability of LNG as a transitional fuel.

As such, the maritime industry will have to look at low carbon alternatives to LNG such as BIO-LNG and renewable LNG.